Better Buy: Amazon or the Whole S&P 500?
High-flying stocks like Amazon (NASDAQ: AMZN) justifiably capture the attention of investors, but it can be difficult to reconcile Amazon's great performance with the prevailing wisdom of diversification and indexing. Deciding between Amazon and the whole S&P 500 index (SNPINDEX: ^GSPC) should be an easy choice for the vast majority of investors, but the better buy ultimately depends on several factors specific to the individual, such as risk tolerance and other portfolio holdings.
Amazon has achieved a 25.8% revenue compound annual growth rate (CAGR) over the past five years along with a 115% earnings-per-share (EPS) CAGR. This outstanding fundamental performance has translated to excellent returns in the stock market. Amazon shares have risen 384% over those five years, five times more than the S&P return over that period. The company is a leader in e-commerce, and data storage and management, which are both high-growth categories for the medium term. Competition is always a threat to stability, but there's no reason to expect Amazon's strong results to halt, given its position and industry exposure.
Image source: YCharts, November 2020
Source Fool.com
